Consolidation in a box

Consolidation in a box

Consolidation is the term for a price behavior where a stock trades within limited price ranges and offer relatively few trading opportunities until another pattern emerges. It can be a continuous pattern or reversal pattern. I usually look for following characteristics while identifying consolidation :

1. Stock has definable and steady support and resistance levels, much like a flag continuation pattern

2. The second characteristic is a narrow trading range; be careful, though, because not all stocks and securities have similar volatility. Trading ranges are relative.

3.The last feature to look for is a relatively low level of trading volume that does not exhibit major spikes. This is from the books. I am not a big follower of volume while identifying patterns.

Significance of Consolidation : Once a consolidation has been identified, keep an eye out for any possible breakout above or below the upper resistance and lower support lines.